Amazon HQ2 Goes to New York City and Northern Virginia

After Jeff Bezos set off one of the highest-profile bidding wars in modern history, Amazon picked two East Coast cities for its new headquarters. The surprise extra: There's something in it for Nashville, too.

Amazon announced today that Long Island City, Queens, and Arlington, Virginia, will be sister hosts to its second and third headquarters. In Nashville, Tennessee, Amazon will put a smaller “Operations Center of Excellence.”The decision—which was already partly spoiled by leakerslast week—closed the final chapter in a contentious, 14-month-long selection process that pitted cities across the U.S. (and Canada) against one another in what might be the most high-profile public bidding war in modern history.

Amazon will bring more than 25,000 full-time jobs to each partner region; along with 4 million square feet of office space (that might eventually expand to $8 million), and a projected $2.5 billion in investment. “These two locations will allow us to attract world-class talent that will help us to continue inventing for customers for years to come,” said Jeff Bezos, founder and CEO of Amazon, in a statement. In Nashville, it will hire 5,000 full-time workers, occupy 1 million square feet of office space, and inject about $230 million in investment, according to Amazon’s statement. Hiring for all three sites will begin in 2019.

For the chance to win high-paying tech jobs, cities and states offered as much as $8.5 billion in tax incentives, revamped their transit plans, and staged elaborate marketing campaigns to lure the company.

Arlington and New York seemingly did not issue the very highest bids. But they, too, offered hefty sums, according to Amazon. Between the three sites, the company will be given more than $2 billion in incentives. Some of the funds will be contingent on the number of jobs with salaries over $150,000 they create: $1.2 billion from New York State; $550 million from Virginia; and $102 million from Nashville and Tennessee. It will also receive $23 million in cash grants from Arlington, which will come from a slow increase to a local hotel room tax; and $325 million from Empire State Development in New York, based on how much square footage Amazon ends up occupying. This is all according to agreements released by Amazon, and may be subject to local changes or approvals.

Cities have also been making targeted investments for months, in part with Amazon in mind: Long Island justannounced $180 million in planned expenditures targeted at transit, infrastructure, and housing; and in March, the D.C. metro area made $500 million in investments to its metro. Based on the agreements released today, Virginia will invest another $195 million in neighborhood infrastructure, according to Amazon; and put $28 million in future property tax revenues towards developing on-site infrastructure for Amazon’s future headquarters, which will be located in the newly-named National Landing neighborhood.

The agreements also outlined some community benefits—though both Amazon and the regions are on the hook for funding them. In New York City, Amazon won’t pay property taxes on a portion of its development site, instead funding “community infrastructure improvements developed through input from residents during the planning process.” They’ll also donate space for a tech startup incubator, and a new public school. And together, the state, city, and company will fund a $15 million workforce development program.

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Besides the physical and economic shockwaves an Amazon headquarters will likely set off in Northern Virginia and New York City,the selection process could also signal a paradigm shift for these kinds of economic development deals. By publicly releasing a North America-wide Request for Proposals last September, Amazon breathed drama into the once-obscure site selection process. In Hunger Games-style elimination rounds, Amazon whittled down a pool of 238 competing regions to 20 in December, and has spent almost a year bring that down to two.

To gain a competitive advantage, some cities and states altered their tax codes or introduced new legislative measures to free up more funding. Others unearthed little-used economic development plans (like one in Illinois that returns some of employees’ income taxes back to the corporation), or considered letting Amazon control what social programs their tax dollars would fund. Newark’s $7 billion and Maryland’s $8.5 billion offers were the flashiest numbers, but many more cities’ proposals were redacted or entirely secret.

“Citizens have no idea what their elected officials have promised to a company headed by the richest person on earth,” said Greg Leroy, the executive director of corporation accountability non-profit Good Jobs First, in a statement.

Throughout this whole ordeal, cities were under the impression there would be one lucky winning city that would reap all the reward of a coveted HQ2, and that was worth the price. When it emerged just a few days ago that Amazon might award two cities second headquarters, many participants in this process felt a bait-and-switch had soured their trust in the bidding process.

“Of course #jerseycity would benefit if it’s in NY,” wrote Jersey City mayor Steven Fulop on Twitter Monday night. “But I still feel this entire Amazon process was a big joke just to end up exactly where everyone guessed at the start.”

“It's highly unlikely that this was a decision only recently arrived at,” added Roshan Abraham, who leads the Steering Committee for activist group Our Revolution Arlington. “Which only further begs the question of how other municipalities have been manipulated by Amazon to give them endless amounts of information about their communities paid completely by taxpayer dollars.”

With all this bad press, other companies might be deterred from copying Amazon’s negotiation strategy. “The way they conducted the process, I don’t think companies are going to mimic at all, in fact they’ll turn away from it,” said Tom Stringer, a site selection expert. “From the get-go, a lot of state officials wasted money, time and effort [on their bids]. They squandered tax payer resources.” And, leaders now may be asking themselves, for what?

For Amazon, the benefits of picking two sites—especially these two—are a bit clearer. In Northern Virginia, Amazon will have the Pentagon, the Department of Defense, and the White House at its fingertips. Bezos will be able to spend weekends courting lobbyists at his house, the most valuable property in the city, and weekdays visiting data farms in Loudoun County. In Long Island City, employees will have easy access to the joys of New York, along with access to the highly-trained products of the New England university belt. As for tax breaks, Amazon won’t get double: Since most of the incentives the two jurisdictions offered will be performance-based, they’ll shrink with the size of Amazon’s investment, Leroy told CityLab last week—but the company might have used its leverage over both to make them offer more.

What’s more, finding just one host with the right infrastructure and the number of tech workers Amazon sought was always going to be a challenge, says Stringer. “It would have been hard to find that number of people and get that space with all the requirements they have,” he said. “It’s a volume problem.” By choosing two sites, the company is hedging its bets.

For the sites in question, Amazon’s decision to split HQ2 in two could prove a blessing in disguise. In its original Request for Proposals, the company said it would employ 50,000 workers total, paid an average of $100,000. To the region itself, the company promised an investment of $5 billion, and a physical footprint that would eventually swell to 8.1 million square feet in office space. HQ2 would be “a full equal” to the company’s Seattle home base, the company said.

Now, that equal partner will be halved, with Northern Virginia and New York Citygetting 25,000 jobs each. Nashville will get 5,000. While breaking the company into smaller chunks will likely soften the shock to either region’s system, a project of Amazon’s size in either location is projected to compel a cosmic urban shift—raising rents, straining traffic, and shifting demographics by bringing thousands of highly-educated, highly-paid workers in. “Even at half the projected HQ2 size, each of these projects will induce enormous growth,” wrote Leroy. “If Amazon gets tax breaks and doesn't pay the full costs of this induced growth, existing residents and small business owners will get stuck with higher taxes and more-stressed public services.” Still, says Stringer, it’s a “generationally transformative project.”

Amazon’s relationship with its first home base, Seattle, could offer a hint at what that transformation could look like. In the years since it opened there in 2011, Amazon has created more than 40,000 jobs, and spread to occupy almost 20 percent of the city’s prime office space. It’s been a catalyst for Seattle’s identity shift into a major tech hub. But the economic boon has been a double-edged sword: Seattle’s rate of homelessness is third-highest in the U.S.; and the median housing price has grown to $770,000.

Activists and policy experts are worried that inQueens and Northern Virginia, even a smaller Amazon will compel more of the same. But these regions’ recent rapid growth may better equip them to adopt 25,000 employees over the next ten years, as Amazon plans. In Queens, housing sales prices rose more than 7 percent over the last year, and the Long Island City area has the largest number of apartments under current and planned construction in the city, according to Localize.city, a catalog of NYC building data.

“[I]f any area in New York is poised for a major influx in residents, it's Long Island City,” Localize.city urban planner Stephen Albonesi said in an email. “… where a building boom is already remaking much of the area and where residents have been grappling with how to meet the demands of thousands of new people.”

The entrance will also be gradual. “It’s not like tomorrow, UFOs are coming in and dumping all of these jobs and people,” says Elizabeth Lusskin, the president of The Long Island Partnership, an economic development non-profit. “Whether or not one large company comes in, there is going to be a lot of growth in the area, and there are other companies that are interested.” Just this week, the Wall Street Journal reported that Google has plans to bring more than 12,000 new workers into New York City. The property is in the West Village, but the boost could impact all five boroughs. “It’s incumbent on everybody to continue the process of thinking holistically and proactively about how the neighborhood continues to evolve,” said Lusskin.

Arlington, too, has climbing median home values, reaching $664,000 this year; and the D.C. metro area is increasingly squeezed for housing supply. Lower income residents have for years been pushed to the periphery, says Yesim Sayin Taylor, executive director of the D.C. Policy Center. With an Amazon, migration to the exurbs will only continue—and even without it, more building is necessary. “We are a region that’s growing and expanding very rapidly, and our housing markets have been changing for a long time,” she said. “All the things people say about what Amazon did to Seattle or San Francisco—it’s already happening in our region.”

It’s this reality—that, in the end, Amazon chose two of the sites most similar to Seattle and the Bay Area of the hundreds it had proposals from—that might sting for losing cities. Amazon already employs more people in New York City and the Northern Virginia/D.C. area than anywhere else in the country, according to the New York Times, save Seattle and the Bay:“About 1,800 people in advertising, fashion, and publishing already work for Amazon in New York, and roughly 2,500 corporate and technical employees work in Northern Virginia and Washington.” Amazon has slowly been pouring more money into its lobbying army in D.C.

“For the many that haven’t been chosen, I think there is a whiff of hopelessness,” said Mark Muro, aSenior Fellow at the Metropolitan Policy Program at Brookings. “Because many of these places put forward very impressive and very plausible proposals—and this particular outcome makes it seem almost inevitable that they would ever site there.”

Today’s winners may not be surprising, then, on their merits. But Amazon’s tri-state investment is almost without precedent. “We don’t know what it means for a company to have three headquarters,” said Stringer. “That just doesn’t happen.”

Seattle Mayor Jenny Durkan says she sees the downgraded HQs as a good omen for Seattle, at least. After Amazon threatened to slow investment downtown if the council moved forward with a measure taxing businesses to fund affordable housing, the city-company relationship has faltered. For Durkan, this announcement is affirmation that Amazon’s first HQ won’t be eclipsed by a bigger upgrade, and that employees won’t flee her city for another coast. “I call those branch offices,” she said.

But it could also be a sign that Amazon is looking far beyond its original home town, says Stringer.Now that Amazon has a Rolodex of over 200 minutely detailed insights into the infrastructure and tax policy of major North American cities, it could find it much easier to open satellites in even more strategic locations.